SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended December 31, 2000

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                        For the transition period from to

                           Commission File No.: 1-5270

                              SOFTNET SYSTEMS, INC.
             (Exact name of registrant as specified in its charter)

              Delaware                                 11-1817252
   --------------------------------        ---------------------------------
   (State or other jurisdiction of        (I.R.S. Employer Identification No.)
     incorporation or organization)

650 Townsend Street, Suite 225, San Francisco, CA          94103
-------------------------------------------------      --------------
   (Address of principal executive offices)              (Zip Code)

Registrant's telephone number, including area code:  (415) 365-2500



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                                    Yes X    No
                                       ---     ---

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.




                   Class                     Outstanding at January 31, 2001
      -------------------------------        -------------------------------
       Common stock, $0.01 par value                     26,283,907
<PAGE>

                     SoftNet Systems, Inc. and Subsidiaries
                                      Index
                                                                            Page

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets as of December 31,
           2000 and September 30, 2000......................................  2

         Condensed Consolidated Statements of Operations for the three
           months ended December 31, 2000 and 1999..........................  3

         Condensed Consolidated Statements of Cash Flows for the three
           months ended December 31, 2000 and 1999..........................  4

         Notes to Condensed Consolidated Financial Statements...............  5

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations................................  9

Item 3   Quantitative and Qualitative Disclosures About Market Risk......... 13

PART II- OTHER INFORMATION

Item 1   Legal Proceedings.................................................. 14

Item 2   Changes in Securities.............................................. 14

Item 3   Defaults Upon Senior Securities.................................... 14

Item 4   Submission of Matters to a Vote of Security Holders................ 14

Item 5   Other Information.................................................. 15

Item 6   Exhibits and Reports on Form 8-K................................... 24



<PAGE>
PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
                     SoftNet Systems, Inc. and Subsidiaries
                      Condensed Consolidated Balance Sheets
                        (In thousands, except share data)
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                       December 31,    September 30,
                                                                                           2000            2000
                                                                                           ----            ----

                                       ASSETS

<S>                                                                                   <C>             <C>
Current assets:
   Cash and cash equivalents......................................................    $       20,197  $        44,731
   Short-term investments, available for sale.....................................           108,493          127,421
   Accounts receivable, net of allowance for doubtful accounts of $119 and $68,
     respectively.................................................................             2,597            2,558
   Notes receivable...............................................................             2,000            2,100
   Inventory......................................................................             6,071            4,128
   Other current assets...........................................................               721            1,272
                                                                                      --------------  ---------------

Total current assets..............................................................           140,079          182,210

Restricted cash...................................................................             1,501            1,492
Property and equipment, net of accumulated depreciation of $1,557 and $1,172,
   respectively...................................................................             5,009            4,679
Intangibles, net of accumulated amortization of $4,403 and $3,828, respectively...            11,682           12,257
Accounts receivable, non current portion..........................................             2,966            3,409
Long-term equity investments......................................................             7,845            7,716
Other assets......................................................................               320              543
                                                                                      --------------  ---------------

                                                                                      $      169,402  $       212,306
                                                                                      ==============  ===============

                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable...............................................................    $        5,511  $         3,530
   Net liabilities associated with discontinued operations........................            28,362           56,595
   Other accrued expenses.........................................................             7,494            6,002
   Current portion of long-term debt..............................................             2,161            2,161
                                                                                      --------------  ---------------

Total current liabilities.........................................................            43,528           68,288

Long-term debt, net of current portion............................................             1,444            2,104
Business acquisition liability...................................................             2,000            2,000
                                                                                      --------------  ---------------

Total liabilities.................................................................            46,972           72,392
                                                                                      --------------  ---------------

Commitments and contingencies

Stockholders' equity:
   Preferred stock, $0.10 par value, 3,970,000 shares designated, no shares issued
     and outstanding..............................................................                 -                -
   Common stock, $0.01 par value, 100,000,000 shares authorized; 28,531,615 and
     28,523,474 shares issued, 26,241,115 and 28,113,974 shares outstanding,
     respectively.................................................................               264              264
   Additional-paid-in capital.....................................................           499,537          503,802
   Deferred stock compensation....................................................           (23,917)         (28,577)
   Accumulated other comprehensive loss...........................................            (2,663)            (696)
   Accumulated deficit............................................................          (341,654)        (332,600)
   Treasury stock, at cost, 2,290,500 and 409,500 shares, respectively............            (9,137)          (2,279)
                                                                                      --------------  ---------------

Total stockholders' equity........................................................           122,430          139,914
                                                                                      --------------  ---------------

                                                                                      $      169,402  $       212,306
                                                                                      ==============  ===============

<FN>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                     SoftNet Systems, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Operations
                      (In thousands, except per share data)
                                   (Unaudited)

                                                                                      Three Months Ended December 31,
                                                                                      --------------- ----------------
                                                                                           2000            1999
                                                                                           ----            ----

<S>                                                                                   <C>             <C>
Net sales.........................................................................    $        1,395  $           319
Cost of sales.....................................................................             1,346              638
                                                                                      --------------  ---------------

   Gross profit (loss)............................................................                49             (319)
                                                                                      --------------  ---------------

Operating expenses:
   Selling and marketing, exclusive of non-cash compensation expense of $0 and $90,
     respectively.................................................................             1,175            1,095
   Engineering, exclusive of non-cash compensation expense of $44 and $108,
     respectively.................................................................             1,726              587
   General and administrative, exclusive of non-cash compensation expense (benefit)
     of $(333) and $3,816, respectively...........................................             3,518            2,543
   Depreciation...................................................................               385              178
   Amortization...................................................................               575              574
   Non-cash compensation expense (benefit) related to stock options...............              (289)           4,014
   Restructuring expense..........................................................             3,900                -
                                                                                      --------------  ---------------

Total operating expenses..........................................................            10,990            8,991
                                                                                      --------------  ---------------

Loss from continuing operations before other income (expense), income taxes and
   discontinued operations........................................................           (10,941)          (9,310)

Other income (expense):
   Interest income................................................................             2,649            2,142
   Interest expense...............................................................               (48)            (207)
   Equity in net losses of investee companies.....................................              (374)               -
   Other expense, net.............................................................              (340)              (9)
                                                                                      --------------  ---------------

Loss from continuing operations before income taxes and discontinued operations,
   net of tax.....................................................................            (9,054)          (7,384)

Provision for income taxes........................................................                 -                -
                                                                                      --------------  ---------------

Loss from continuing operations...................................................            (9,054)          (7,384)

Loss from discontinued operations, net of tax.....................................                 -          (13,234)
                                                                                      --------------  ---------------

Net loss applicable to common shares..............................................    $       (9,054) $       (20,618)
                                                                                      ==============  ===============

Basic and diluted loss per common share:
   Loss from continuing operations applicable to common shares....................    $        (0.36) $        (0.39)
   Discontinued operations........................................................                 -           (0.69)
                                                                                      --------------  --------------
   Net loss applicable to common shares...........................................    $        (0.36) $        (1.08)
                                                                                      ==============  ==============

Shares used to compute basic and diluted loss per common share....................            24,997          19,164
                                                                                      ==============  ==============
<FN>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>

 <TABLE>
<CAPTION>

                     SoftNet Systems, Inc. and Subsidiaries
                 Condensed Consolidated Statements of Cash Flows
                                 (In thousands)
                                   (Unaudited)

                                                                                      Three Months Ended December 31,
                                                                                      --------------- ----------------
                                                                                           2000            1999
                                                                                           ----            ----

<S>                                                                                   <C>             <C>
Cash flows from operating activities:
   Net loss.......................................................................    $       (9,054) $       (20,618)
   Adjustments to reconcile net loss to net cash used in operating activities:
     Loss from discontinued operations............................................                 -           13,234
     Depreciation and amortization................................................               960              752
     Amortization of deferred stock compensation expense (benefit)................              (289)           4,014
     Amortization of deferred debt issuance costs.................................                 7               36
     Provision for doubtful accounts..............................................                51               10
     Provision for inventory losses...............................................                87                -
     Equity in net losses of long-term equity investment..........................               374                -
     Loss on disposition of long-term equity investment...........................                18                -
     Loss on disposition of short-term investment.................................                 1                -
     Changes in operating assets and liabilities (net of effect of acquisitions and
       discontinued operations):
       Decrease (increase) in accounts receivable, net............................               353              (63)
       Increase in inventory......................................................            (2,030)             (75)
       Decrease (increase) in other current assets................................               540             (376)
       Decrease in other assets...................................................                 7               22
       Increase (decrease) in accounts payable and accrued expenses...............             3,453           (3,476)
                                                                                      --------------  ---------------
Net cash used in operating activities of continuing operations....................            (5,522)          (6,540)
Net cash used in operating activities of discontinued operations..................           (22,734)         (12,489)
                                                                                      --------------  ---------------
Net cash used in operating activities.............................................           (28,256)          19,029
                                                                                      --------------  ---------------
Cash flows from investing activities:
   Proceeds from maturities and sales (payment for purchases) of short-term
     investments, net.............................................................            17,194          (23,948)
   Payments for purchase of equity investments....................................              (783)               -
   Payment for purchase of property and equipment.................................              (715)            (739)
   Disbursement for promissory notes issued.......................................                 -           (3,000)
   Payment received on note receivable............................................                 -            1,000
                                                                                      --------------  ---------------
Net cash provided by (used in) investing activities of continuing operations......            15,696          (26,687)
Net cash used in investing activities of discontinued operations..................            (2,806)          (1,665)
                                                                                      --------------  ---------------
Net cash provided by (used in) investing activities...............................            12,890          (28,352)
                                                                                      --------------  ---------------

Cash flows from financing activities:
   Proceeds from sale of common stock, net of selling costs.......................                 -          128,750
   Proceeds from exercise of warrants.............................................                 -              280
   Proceeds from exercise of options..............................................                 -              826
   Payment for purchase of treasury stock.........................................            (6,858)               -
   Principal payments of long-term debt...........................................              (660)             (70)
                                                                                      --------------  ---------------
Net cash provided by (used in) financing activities of continuing operations......            (7,518)         129,926
Net cash provided by (used in) financing activities of discontinued operations....            (1,678)           2,307
                                                                                      --------------  ---------------
Net cash provided by (used in) financing activities...............................            (9,196)         132,233
Foreign exchange effect on cash and cash equivalents..............................                28                -
                                                                                      --------------  ---------------
Net increase (decrease) in cash and cash equivalents..............................           (24,534)          84,852
Cash and cash equivalents, beginning of period....................................            44,731           89,499
                                                                                      --------------  ---------------
Cash and cash equivalents, end of period..........................................    $       20,197  $       174,351

<FN>

              The accompanying notes are an integral part of these
                  condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>



                     SoftNet Systems, Inc. and Subsidiaries
              Notes to Condensed Consolidated Financial Statements

1.       Basis of Presentation

The  financial   information  included  herein  is  unaudited;   however,   such
information  reflects all  adjustments  (consisting  solely of normal  recurring
adjustments, except as otherwise noted) which are, in the opinion of management,
necessary for a fair  presentation of the condensed  consolidated  statements of
financial  position,  results  of  operations  and cash  flows as of and for the
interim periods ended December 31, 2000 and 1999.

SoftNet  Systems,  Inc.'s  annual  report on Form 10-K for the fiscal year ended
September 30, 2000, as filed with the Securities and Exchange Commission, should
be read in conjunction with the accompanying  condensed  consolidated  financial
statements.  The condensed  consolidated  balance sheet as of September 30, 2000
was derived from SoftNet Systems,  Inc. and Subsidiaries (the "Company") audited
consolidated financial statements.

The results of operations for the three months ended December 31, 2000 are based
in part on  estimates  that may be subject to year-end  adjustments  and are not
necessarily indicative of the results to be expected for the full year.

The  condensed  consolidated  financial  statements  for the three  months ended
December  31,  1999 have  been  restated  for the  effects  of the  discontinued
operations of the cable-based Internet services segment.

Certain  reclassifications  have been made to prior year financial statements in
order to conform to the current year presentation.

2.       Discontinued Operations

Discontinued Operations of Aerzone Corporation ("Aerzone")

On December 19, 2000, the Company decided to discontinue the Aerzone, a Delaware
corporation,  business in light of significant  long-term  capital needs and the
difficulty of securing the necessary  financing  because of the current state of
the financial markets.  The plan includes a reduction in personnel.  The Company
anticipates that it will sell Laptop Lane Limited ("Laptop Lane"), a part of the
Aerzone  business.  Although it is difficult to predict the final  results,  the
loss from discontinued  operations includes  management's  estimates of costs to
wind down the business,  costs to settle its  outstanding  liabilities,  and the
proceeds from the sale of assets including Laptop Lane. The actual results could
differ  materially  from these  estimates.  The assets and  liabilities  of such
operations  are  reflected  as  net  liabilities  associated  with  discontinued
operations of Aerzone on the consolidated balance sheets as of December 31, 2000
and September 30, 2000.

Net liabilities  associated with discontinued  operations of Aerzone at December
31, 2000 and September 30, 2000 are as follows (in thousands):

                                                   December 31,     September
                                                       2000         30, 2000
                                                  --------------  -------------
  Current assets...............................   $        1,047  $       1,851
  Property, plant and equipment, net...........            7,350          4,226
  Other assets.................................              257            241
                                                  --------------  -------------

  Total assets.................................   $        8,654  $       6,318
                                                  ==============  =============


  Current liabilities..........................   $       13,186  $      25,202
                                                  ==============  =============


  Net liabilities associated with
      discontinued operations..................   $       (4,532) $     (18,884)
                                                  ==============  =============


Discontinued Operations of ISP Channel, Inc.

On  December  7,  2000,  the  Company's  Board of  Directors  approved a plan to
discontinue  providing  cable-based  Internet  services through its ISP Channel,
Inc. ("ISP Channel")  subsidiary by December 31, 2000, because (1) consolidation
in the cable  television  industry  made it difficult for ISP Channel to achieve
the economies of scale  necessary to provide such services  profitably,  and (2)
the Company was no longer able to bear the costs of maintaining the ISP Channel.
The  operating  results of ISP  Channel  have been  segregated  from  continuing
operations and are reported as loss from discontinued operations,  net of tax on
the  consolidated  statements of operations  for the three months ended December
31, 2000.  Although it is difficult to predict the final results,  the loss from
discontinued  operations includes  management's  estimates of costs to wind down
the business, costs to settle its outstanding liabilities, and the proceeds from
the sale of assets.  The  actual  results  could  differ  materially  from these
estimates.  The assets and  liabilities of such operations were reflected as net
assets (liabilities)  associated with discontinued  operations of ISP Channel on
the consolidated balance sheets as of December 31, 2000 and September 30, 2000.
<PAGE>

Operating  results of ISP Channel for the three months  ended  December 31, 1999
are as follows (in thousands):

        Revenues..................................    $         958
                                                      =============

        Loss before income taxes..................    $     (13,234)
        Provision for income taxes................                -
                                                      -------------

        Net loss..................................    $     (13,234)
                                                      ==============

Net assets (liabilities)  associated with discontinued operations of ISP Channel
at December 31, 2000 and September 30, 2000, are as follows (in thousands):

                                                    December 31,     September
                                                       2000         30, 2000
                                                  --------------  -------------
        Current assets..........................  $        2,717  $       4,170
        Property, plant and equipment, net......          10,884         12,890
        Other assets............................              91            222
                                                  --------------  -------------

        Total assets............................  $       13,692  $      17,282
                                                  ==============  =============


        Current liabilities.....................  $       31,887  $      47,237
        Long-term debt, net of current portion..           1,352          1,615
        Capital lease obligation, net of
           current portion......................           4,283          6,141
                                                  --------------  -------------

        Total liabilities.......................  $       37,522  $      54,993
                                                  ==============  =============

        Net assets (liabilities) associated
           with discontinued operations.........  $      (23,830) $     (37,711)
                                                  ==============  =============

3.       Restructuring Charge

The  Company  recognized  a  restructuring  charge  for the three  months  ended
December  31, 2000  related to a plan to  downsize  its  corporate  headquarters
staff.  The charge in the amount of  $3,900,000,  which  consists  primarily  of
termination  payments for affected  employees,  was recognized as  restructuring
expense and is reflected in other accrued expenses on the  consolidated  balance
sheet as of December 31, 2000. No charges have been made against this accrual as
of December 31, 2000.

4.       Cash, Cash Equivalents and Short-Term Investments

Cash  equivalents  consist of securities with maturities of three months or less
at date of purchase.  Short-term investments as of December 31, 2000, consist of
$98,744,000 of debt securities that mature in less than one year,  $1,522,000 of
debt securities  that mature in one to five years,  and $8,227,000 of short-term
equity  securities.  Cash  and  cash  equivalents,  and  short-term  investments
consisted of the following as of December 31, 2000 (in thousands):
<TABLE>

                                                                      Unrealized      Unrealized
                                                          Cost            gain           loss           Market
                                                      -------------  --------------  -------------  --------------
<S>                                                   <C>            <C>             <C>            <C>
        Cash and cash equivalents:
           Cash...................................    $       8,010  $            -  $           -  $        8,010
           Municipal securities...................           11,787               -             (1)         11,786
           Money market funds.....................              401               -              -             401
                                                      -------------  --------------  -------------  --------------

                                                      $      20,198  $            -  $          (1) $       20,197
                                                      =============  ==============  ============== ==============

        Short-term investments:
           Municipal securities...................    $      63,032  $            -  $        (332) $       62,700
           US Treasury securities.................           26,576              18              -          26,594
           Foreign debt securities................           10,975               -             (3)         10,972
           Common and preferred stock.............           10,604               -         (2,377)          8,227
                                                      -------------  --------------  -------------  --------------

                                                      $     111,187  $           18  $      (2,712) $      108,493
                                                      =============   =============   ============   =============
</TABLE>
<PAGE>

5.        Long-Term Debt and Debt Issuance Costs

On November  15,  2000,  the Company  paid the  remaining  $660,000  and accrued
interest related to the 6% Convertible Subordinated Secured Debentures.

Long-term debt is summarized as follows (in thousands):

                                                December 31,    September 30,
                                                    2000            2000
                                                    ----            ----

        Convertible subordinated debentures             1,444  $         2,104
        Promissory notes                                2,000            2,000
        Other                                             161              161
                                               --------------  ---------------

                                                        3,605            4,265
        Less current portion                           (2,161)          (2,161)
                                               --------------  ---------------

                                               $        1,444  $         2,104
                                               ==============  ===============

6.       Supplemental Cash Flow Information

The supplemental cash flow information is as follows (in thousands):
<TABLE>

                                                                                      Three Months Ended December 31,
                                                                                           2000            1999
                                                                                           ----            ----


<S>                                                                                   <C>             <C>
Cash paid during the year for:
   Interest.......................................................................    $           17  $          190
   Income taxes...................................................................                 -               -

Non-cash investing and financing activities:
   Value assigned to debt conversion feature......................................                 -              34
   Common stock issued for-
     Conversion of subordinated notes.............................................                 -           9,887
     Cable affiliate launch incentives............................................                 -           8,531
   Decrease in additional-paid-in capital associated with common stock options....            (4,265)           (157)
   Unrealized gain (loss) on short-term investments...............................            (1,995)             42
</TABLE>

7.       Segment Information

The Company currently  operates one business segment,  satellite-based  Internet
services  and  VSAT  equipment  sales  through  its  wholly  owned   subsidiary,
Intellicom.  Segment  information  for  continuing  operations is as follows (in
thousands):
<TABLE>

                                                                                Three Months Ended December 31,
                                                                                     2000             1999
                                                                                     ----             ----

<S>                                                                             <C>              <C>
        Net Sales:
           Satellite-based Internet services and VSAT equipment sales........   $         1,395  $          319
                                                                                ---------------  --------------

                                                                                $         1,395  $          319
                                                                                ===============  ==============

        Loss from continuing operations before income taxes:
           Satellite-based Internet services and VSAT equipment sales........   $        (4,199) $       (2,268)
           Corporate.........................................................            (3,131)         (3,028)
           Non-cash compensation (expense) benefit related to stock options..               289          (4,014)
           Restructuring expense.............................................            (3,900)              -
           Other income (expense), net.......................................             1,887           1,926
                                                                                ---------------  --------------

                                                                                $        (9,054) $       (7,384)
                                                                                ===============  ==============
</TABLE>
<PAGE>

8.          Subsequent Events

On February 16, 2001, the Company and ISP Channel  entered into  agreements with
Mediacom LLC ("Mediacom"),  which terminated  Mediacom's affiliate  relationship
with ISP Channel.  As part of these agreements  Mediacom returned to the Company
1.3 million  shares of the Company's  common stock and released all  obligations
under the affiliate  agreement with ISP Channel in return for certain  equipment
and cash  payment from the Company.  Pursuant to these  agreements,  neither the
Company nor ISP Channel has any further material obligation to Mediacom.

On February 7, 2001, the Company  offered to purchase for cash certain rights to
the  Company's  common  stock held by the  former  shareholders  of  Intelligent
Communications,  Inc.  ("Intellicom")  pursuant to the Company's  acquisition of
Intellicom in 1999. As of February 16, 2001, holders representing  approximately
94% of these rights had accepted the Company's  offer. As a result,  the Company
will pay these holders approximately $2.8 million and will reduce long-term debt
and business acquisition liability by approximately $3.8 million plus interest.


<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

This  Form 10-Q  contains  forward-looking  statements  that  involve  risks and
uncertainties.  The actual results of SoftNet Systems, Inc. and its subsidiaries
could differ significantly from those set forth herein. Factors that could cause
or  contribute  to such  differences  include,  but are not  limited  to,  those
discussed in "Factors Affecting the Company's Operating Results" as set forth in
the Company's  annual report on Form 10-K for the year ended September 30, 2000,
as  filed  with  the  Securities  and  Exchange  Commission,  and  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  as
well as those discussed elsewhere in this quarterly report. Statements contained
herein that are not historical  facts are  forward-looking  statements  that are
subject to the safe harbor created by the Private  Securities  Litigation Reform
Act of 1995. Words such as "believes",  "anticipates",  "expects", "intends" and
similar expressions are intended to identify forward-looking statements, but are
not the exclusive means of identifying  such  statements.  A number of important
factors  could cause our actual  results for the year ended  September 30, 2000,
and beyond to differ materially from past results and those expressed or implied
in any forward-looking  statements made by us, or on our behalf. We undertake no
obligation   to  release   publicly  the  results  of  any  revisions  to  these
forward-looking  statements that may be made to reflect events or  circumstances
after the date hereof or to reflect the occurrence of unanticipated events.

The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with, and is qualified in its entirety
by reference to, the  Consolidated  Financial  Statements of the Company and the
related Notes  thereto  appearing in our annual report on Form 10-K for the year
ended  September 30, 2000, as filed with the Securities and Exchange  Commission
and our Condensed  Consolidated  Financial  Statements and related Notes thereto
appearing elsewhere in this quarterly report.

Overview

The Company currently conducts its continuing operations through its subsidiary,
Intelligent   Communications,   Inc.  ("Intellicom"),   which  provides  two-way
broadband satellite connectivity utilizing very small aperture terminal ("VSAT")
technology to a wide variety of business customers.

Revenue for Intellicom  consists  primarily of (i) monthly  service fees paid by
users of the  satellite  service  on a per  VSAT  basis,  and (ii)  VSAT-related
equipment sales.

Cost of sales for Intellicom  consists  primarily of connectivity cost and costs
of VSAT equipment sold.  Intellicom's  connectivity  cost consists  primarily of
satellite transponder fees.  Currently,  Intellicom has transponder space on two
satellites,  GE-3  and  SatMex  5,  both of  which  provide  coverage  over  the
continental United States and beyond.

The Company reports operating  expenses in several  categories:  (i) selling and
marketing  includes,  in  addition  to the costs of selling  and  marketing  the
Company's  services to end users,  customer care, and content  production;  (ii)
engineering,  which  includes the costs of  maintaining  and manning the network
operations  center,  field  engineering  and information  technology;  and (iii)
general and  administrative  costs.  Also  included in  operating  expenses  are
depreciation,   amortization   and   compensation   related  to  stock  options.
Amortization  expense primarily  consists of the periodic write off of developed
technology acquired.  Compensation related to stock options primarily relates to
the  amortization  of deferred  stock  compensation  expense from stock  options
granted between October 1998 and March 1999.

The results of  operations  for the three months ended  December 31, 1999,  have
been restated for the effects of  discontinued  operations of ISP Channel,  Inc.
("ISP Channel").

Results of Operations  for the Three Months Ended  December 31, 2000 compared to
the Three Months Ended December 31, 1999

Net Sales. Consolidated net sales are attributable entirely to Intellicom, which
increased $1,076,000, or 339%, to $1,395,000 for the three months ended December
31, 2000, as compared to $319,000 for the three months ended  December 31, 1999,
primarily as a result of VSAT equipment  sales to Fujitsu ICL and providing VSAT
satellite  service to Tricom,  S.A. Net sales from Intellicom's core business of
satellite-based  Internet services increased $453,000,  or 219%, to $660,000 for
the three months ended  December 31, 2000, as compared to $207,000 for the three
months  ended  December  31,  1999,  primarily  as a result  of  providing  VSAT
satellite service to Tricom, S.A. Equipment sales increased $463,000 to $506,000
for the three  months ended  December  31, 2000,  as compared to $43,000 for the
three months ended  December 31, 1999,  as a result of VSAT  equipment  sales to
Fujitsu ICL. Other sources of sales increased $160,000 to $229,000 for the three
months  ended  December  31,  2000,  as compared to $69,000 for the three months
ended December 31, 1999.
<PAGE>

Cost  of  Sales.  Consolidated  cost  of  sales  are  attributable  entirely  to
Intellicom,  which  increased  $708,000,  or 111%, to  $1,346,000  for the three
months ended  December  31,  2000,  as compared to $638,000 for the three months
ended  December  31,  1999,  primarily  as a result of VSAT  equipment  sales to
Fujitsu ICL and the space  segment  leasing of a full  transponder  beginning on
December 1, 1999, in preparation for providing satellite-based Internet services
to existing and  prospective  customers.  The largest  component of Intellicom's
cost of sales is  transponder  fees,  which  amounted to $914,000  for the three
months ended  December  31,  2000,  as compared to $509,000 for the three months
ended December 31, 1999.  Another  component of  Intellicom's  cost of sales are
equipment costs,  which amounted to $393,000 for the three months ended December
31, 2000, as compared to $26,000 for the three months ended December 31, 1999.

Selling and Marketing. Consolidated selling and marketing expenses (exclusive of
non-cash  compensation  expense of $0 for 2000 and $90,000  for 1999)  increased
$80,000,  or 7%, to $1,175,000  for the three months ended December 31, 2000, as
compared to $1,095,000 for the three months ended December 31, 1999.

Intellicom's  selling and marketing  expenses  increased  $592,000,  or 122%, to
$1,078,000 for the three months ended December 31, 2000, as compared to $486,000
for the three  months  ended  December  31,  1999,  primarily as a result of the
hiring Intellicom has done to staff these departments. The Company believes that
these costs will remain relatively flat in the foreseeable future.

Corporate selling and marketing expenses decreased $512,000,  or 84%, to $97,000
for the three  months ended  December 31, 2000,  as compared to $609,000 for the
three months ended December 31, 1999,  primarily as a result of eliminating  the
new business development department.  These costs are expected to decrease going
forward as part of a corporate restructuring.

Engineering.   Consolidated   engineering   expenses   (exclusive   of  non-cash
compensation  expense  of  $44,000  for 2000 and  $108,000  for 1999)  increased
$1,139,000, or 194%, to $1,726,000 for the three months ended December 31, 2000,
as compared to $587,000 for the three months ended December 31, 1999.

Intellicom's engineering expenses increased $890,000 to $1,418,000 for the three
months ended  December  31,  2000,  as compared to $528,000 for the three months
ended December 31, 1999,  primarily as a result of hiring Intellicom has done to
staff  these  departments.  The  Company  believes  that these costs will remain
relatively flat in the foreseeable future.

Corporate  engineering  expenses  increased  $249,000 to $308,000  for the three
months  ended  December  31,  2000,  as compared to $59,000 for the three months
ended  December 31, 1999,  primarily as a result of personnel  costs  associated
with the  formation  of a  corporate  technology  department.  These  costs  are
expected to decrease going forward as part of a corporate  restructuring,  which
included the elimination of the technology department.

General and  Administrative.  Consolidated  general and administrative  expenses
(exclusive of non-cash compensation expense (benefit) of $(333,000) for 2000 and
$3,816,000  for 1999)  increased  $975,000,  or 38%, to $3,518,000 for the three
months ended  December 31, 2000, as compared to $2,543,000  for the three months
ended December 31, 1999.

Intellicom's general and administrative expenses increased $617,000, or 226%, to
$891,000 for the three months ended  December 31, 2000,  as compared to $274,000
for the three  months ended  December 31, 1999,  primarily as a result of hiring
Intellicom has done to staff these departments, and leasing an additional office
facility in Livermore,  California.  The Company  believes that these costs will
remain relatively flat in the foreseeable future.

Corporate general and  administrative  expenses increased  $358,000,  or 16%, to
$2,627,000  for the three  months  ended  December  31,  2000,  as  compared  to
$2,269,000 for the three months ended December 31, 1999. The growth in corporate
general and  administrative  expenses are a result of the hiring that  corporate
has done to staff its  administrative,  executive  and  finance  departments  to
support  both the  continuing  and  discontinued  operations.  These  costs  are
expected to decrease going forward as part of a corporate restructuring.

Depreciation  and  Amortization.   Consolidated  depreciation  and  amortization
expenses  increased  $208,000,  or 28%, to $960,000  for the three  months ended
December 31, 2000,  as compared to $752,000 for the three months ended  December
31, 1999.

Intellicom's  depreciation and amortization expense increased $200,000,  or 30%,
to  $861,000  for the three  months  ended  December  31,  2000,  as compared to
$661,000 for the three months ended December 31, 1999,  primarily as a result of
increased depreciation related to office furniture and equipment for the network
operations  center. The Company believes  depreciation  expense will increase as
Intellicom  continues to expand its facilities,  while  amortization  expense is
expected to remain the same.
<PAGE>

Corporate  depreciation and amortization  expense  increased  $8,000, or 10%, to
$99,000 for the three months ended December 31, 2000, as compared to $91,000 for
the three  months ended  December  31, 1999,  primarily as a result of increased
depreciation  related to  leasehold  improvements  and office  furniture  of its
corporate offices.

Non-Cash Compensation Expense Related to Stock Options. The Company recognized a
non-cash compensation benefit related to stock options of $289,000 for the three
months ended  December 31, 2000,  as compared to non-cash  compensation  expense
related to stock options of $4,014,000  for the three months ended  December 31,
1999.  For the three months  ended  December  31,  2000,  non-cash  compensation
benefit related to stock options consisted of $289,000 related to employee stock
options and no expense related to non-employee options, and for the three months
ended December 31, 1999, non-cash  compensation expense related to stock options
consisted of $3,614,000  related to employee stock options and $400,000  related
to non-employee options.  Non-cash compensation expense related to stock options
should continue to decrease or generate a benefit,  as the Company  continues to
reduce its staff due its discontinued operations and corporate restructuring.

Restructuring  Expense.  The Company  recognized a restructuring  charge for the
three months ended December 31, 2000 related to a plan to downsize its corporate
headquarters  staff.  The charge in the amount of $3,900,000  was  recognized as
restructuring  expense  and  consists  primarily  of  termination  payments  for
affected employees.

Interest  Income.  Consolidated  interest  income was  $2,649,000  for the three
months ended  December 31, 2000, as compared to $2,142,000  for the three months
ended December 31, 1999.  This increase was primarily due to the increased cash,
cash  equivalent and short-term  investment  balances as a result of the sale of
5,000,000  common stock shares for  $128,121,000 to Pacific  Century  CyberWorks
Limited ("Pacific Century") on December 13, 1999.

Interest Expense.  Consolidated  interest expense decreased $159,000, or 77%, to
$48,000 for the three  months ended  December 31, 2000,  as compared to $207,000
for the three months ended December 31, 1999.  This decrease is primarily due to
the reduction of interest expense resulting from the conversion of the 9% senior
subordinated   convertible   notes  and  the  payment  of  the  6%  subordinated
convertible notes.

Other  Expense,  Net.  Other  expense was  $714,000  for the three  months ended
December 31, 2000,  as compared to other  expense of $9,000 for the three months
ended  December 31, 1999. The increase is primarily due to the net equity losses
related to the long-term equity  investments for the three months ended December
31, 2000.

Income  Taxes.  The Company  made no  provision  for income  taxes for the three
months ended December 31, 2000 and 1999, as a result of the Company's continuing
losses.

Loss  from  Discontinued   Operations.   The  Company  recognized  a  loss  from
discontinued  operations of ISP Channel  $13,234,000  for the three months ended
December 31, 1999.

Net Loss. The Company had a net loss  applicable to common shares of $9,054,000,
or a net loss per share of $0.36,  for the three months ended December 31, 2000,
as compared to a net loss applicable to common shares of  $20,618,000,  or a net
loss per share of $1.08, for the three months ended December 31, 1999.

Liquidity and Capital Resources

Since September 1998, the Company has funded the significant negative cash flows
from its operating  activities and the associated capital expenditures through a
combination  of public and private  equity  sales,  convertible  debt issues and
equipment  leases.  On April 28, 1999, the Company  completed a secondary public
offering (the  "Secondary  Offering"),  in which it sold 4,600,000  common stock
shares at $33.00 per share.  The Company  received  $141,502,000 in cash, net of
underwriting  discounts,  commissions  and other offering costs. On December 13,
1999, the Company completed a private placement of 5,000,000 common stock shares
for net proceeds of $128,121,000 to Pacific Century Cyberworks Limited ("Pacific
Century"), and entitled Pacific Century to designate two persons for election to
the Board of Directors. As of December 31, 2000, the Company had $128,690,000 in
cash, cash equivalents and short-term  investments compared with $250,927,000 as
of December 31, 1999.

Net cash used in operating  activities  of continuing  operations  for the three
months ended  December 31, 2000 was  $5,522,000.  Of this amount,  approximately
$9,054,000  stemmed from the  Company's net loss from  continuing  operations as
reduced  by   approximately   $1,209,000,   for  non-cash   charges,   primarily
depreciation  ($385,000),  amortization  ($575,000)  and equity in net losses of
long-term equity investments ($374,000),  offset by compensation benefit related
to  stock  options  ($289,000).   This  was  offset  in  part  by  approximately
$2,323,000,  which was  generated  from an  increase  in  operating  assets  and
increase  in  operating   liabilities.   Operating  activities  of  discontinued
operations used $22,734,000 of net cash.

Net cash provided by investing activities of continuing operations for the three
months ended December 31, 2000 was  approximately  $15,696,000.  Of this amount,
$17,194,000  was provided by proceeds  from sales and  maturities  of short-term
investments, net of purchases short-term investments, offset by $715,000 used to
purchase  property,  plant  and  equipment,  and  $783,000  was used to  acquire
long-term equity investments.  Investing  activities of discontinued  operations
used $2,806,000 of net cash.
<PAGE>

Net cash used in financing  activities  for the three months ended  December 31,
2000 was $7,518,000  primarily from principal  payments of debt for $660,000 and
payment for purchase of treasury  stock of $6,858,000.  Financing  activities of
discontinued operations used $1,678,000 of net cash.

The Company  believes it has sufficient cash and unutilized  lease facilities to
meet its presently anticipated business requirements over the next twelve months
including the funding of net operating  losses,  working  capital  requirements,
capital investments and strategic investments.



<PAGE>


Item 3.  Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The  Company's  exposure to market risk for  changes in interest  rates  relates
primarily  to the  increase or  decrease  in the amount of  interest  income the
Company can earn on its investment  portfolio and on the increase or decrease in
the amount of interest  expense the Company must pay with respect to its various
outstanding  debt  instruments.  The risk associated with  fluctuating  interest
expense is limited,  however,  to the exposure related to those debt instruments
and credit facilities,  which are tied to market rates. The Company does not use
derivative  financial  instruments  in its  investment  portfolio.  The  Company
ensures the safety and preservation of its invested  principal funds by limiting
default risks,  market risk and reinvestment risk. The Company mitigates default
risk by investing in safe and high-credit quality securities.

The Company had  short-term  investments of  $108,493,000  at December 31, 2000.
Except  for  investments  in  common  and  preferred  stock,   these  short-term
investments consist of highly liquid investments with original maturities at the
date of purchase of between three and eighteen  months.  These  investments  are
subject to interest  rate risk and will fall in value if market  interest  rates
increase.  The Company believes a hypothetical increase in market interest rates
by 10% from levels at  December  31,  2000,  would cause the fair value of these
short-term investments to fall by an immaterial amount. Since the Company is not
required to sell these investments before maturity, we have the ability to avoid
realizing losses on these  investments due to a sudden change in market interest
rates.  On the other hand,  declines in the interest rates over time will reduce
our interest income.

The Company had an  outstanding  convertible  debt  instrument of  approximately
$1,444,000 at December 31, 2000.  This  instrument  has a fixed interest rate of
5.0%.  Because the interest rate of this instrument is fixed, a hypothetical 10%
increase  in  interest  rates  will not have a material  effect on the  Company.
Interest rate increases, however, will increase interest expense associated with
future  borrowing  by the Company,  if any.  The Company does not hedge  against
interest rate fluctuations.

Equity Price Risk

The Company  through its business  dealings has obtained common stock of various
publicly traded technology companies, which are classified as available-for-sale
securities.  As a result,  the Company  values these  investments on its balance
sheet at December 31, 2000,  at market  value.  Unrealized  gains and losses are
excluded from earnings and are reported in accumulated other  comprehensive loss
component of  stockholders'  equity.  The Company has not attempted to reduce or
eliminate its market exposure on these securities, and such investments were not
significant  to the  Company in the prior year.  A 50% adverse  change in equity
prices, based on a sensitivity analysis of technology stocks, would result in an
approximate   $4,900,000   decrease   in  the  fair   value  of  the   Company's
available-for-sale securities portfolio as of December 31, 2000.

Currency Exchange Risk

The  Company  has  historically  had very low  exposure  to  changes  in foreign
currency  exchange  rates,  and as  such,  has  not  used  derivative  financial
instruments to manage foreign currency  fluctuation risk. As the Company expands
globally,   the  risk  of  foreign   currency   exchange  rate  fluctuation  may
dramatically  increase.  Therefore,  in the future,  the  Company  may  consider
utilizing derivative instruments to mitigate such risks.



<PAGE>


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

The Company has no material pending litigation

Item 2.  Changes in Securities

None

Item 3.  Defaults upon Senior Securities

None

Item 4.  Submission of Matters to a Vote of Security Holders

None


<PAGE>


Item 5.  Other Information

                Factors Affecting The Company's Operating Results

The  risks  and  uncertainties  described  below  are not the only ones that the
Company faces.  Additional  risks and  uncertainties  not presently known to the
Company or that the  Company  currently  deems  immaterial  may also  impair the
Company's business operations. If any of the following risks actually occur, the
Company's  business,  financial  condition  or  results of  operations  could be
materially adversely affected.  In such case, the trading price of the Company's
common stock could decline, and you may lose all or part of your investment.

                                  Company Risks

The Company has a Limited History Operating Internet Businesses,  which may make
it Difficult to Evaluate the Company's Performance and Prospects

Any  evaluation of the  Company's  businesses  will be difficult  because of its
limited  operating  history in the Internet  access and services  business.  The
Company  acquired  ISP  Channel  in June  1996,  Intelligent  Communications  in
February 1999 and formed Aerzone in January 2000. Prior to 1996, the Company did
not  have  any  experience  in  businesses  related  to  the  Internet  or  high
technology, and since the acquisition of Intellicom in February 1999, the nature
of the Company's  business has changed.  As a result,  the Company's  historical
financial information may not be indicative of the Company's future results, and
the Company's prospects are difficult to predict and may change rapidly.

In addition,  the Company  confronts  all of the  challenges  and  uncertainties
encountered by growing, early-stage companies, particularly companies in the new
and rapidly evolving international market for Internet connectivity,  access and
related services. These challenges include the Company's ability to:

     o    Increase the services  purchased from the Company by its customers and
          the amount of revenue the Company receives from each of its customers;
     o    Satisfy  the  changing  needs of the  Company's  existing  and  future
          customers;
     o    Acquire, develop and market new Internet services;
     o    Respond to the  changing  needs of the  Internet  access  and  content
          delivery market;
     o    Expand Intellicom's international customer base;
     o    Develop and maintain strategic and business relationships;
     o    Capitalize on the Company's early entrant status; and
     o    Recruit and retain key personnel.

The Company has a History of Losses and Expects to Incur Losses in the Future

The Company has sustained substantial losses over the last five fiscal years and
expects to continue  to report net losses for the  foreseeable  future.  For the
three months ended  December 31, 2000, the Company had a net loss of $9,054,000.
As of December 31, 2000, the Company had an accumulated deficit of $341,654,000.
The Company  expects to incur  additional  losses and  experience  negative cash
flows  related to capital  expenditures,  sales and  marketing,  and general and
administrative  expenses  as  Intellicom  expands its  satellite-based  Internet
services.  These  efforts  may be more  expensive  than  the  Company  currently
anticipates.  The Company cannot guaranty it will ever achieve  profitability or
reduce its accumulated deficit.

The Company may not Generate Sufficient Cash Flows to Support its Expenses

The Company's current expense levels are to a large extent fixed on expectations
of future  revenues.  In addition,  the Company may be unable to adjust spending
quickly enough to compensate for any unexpected revenue shortfall.  As a result,
the Company may not be able to grow its revenues  quickly enough to absorb these
expenses.

The Company may not have Sufficient Capital to Fund its Business Plan

The Company cannot predict with any degree of accuracy  whether the Company will
ultimately  achieve  cash  flow  levels  sufficient  to  support  the  Company's
operations,  development  of new products  and  services,  and  expansion of the
Company's Internet  services.  Unless the Company reaches such cash flow levels,
the Company may require additional  financing to provide funding for operations.
If the  Company is  required  to raise  capital  through a debt  financing,  the
Company  may be highly  leveraged  and such debt  securities  may have rights or
privileges senior to those of the Company's current stockholders. If the Company
is  required  to raise  capital by issuing  equity  securities,  the  percentage
ownership  of the  Company's  stockholders  will be  reduced,  stockholders  may
experience  dilution  and such  securities  may  have  rights,  preferences  and
privileges  senior to those of the Company's  common stock.  The Company  cannot
provide any assurance that such financing will be on terms that are favorable to
the Company.  In the event that the Company cannot generate sufficient cash flow
from operations,  or is unable to borrow or otherwise obtain additional funds on
favorable  terms to finance  operations  when needed,  the  Company's  business,
financial condition, and prospects would be materially adversely affected.
<PAGE>

The Company's  Quarterly  Results are Unpredictable and may Adversely Affect the
Trading Price of the Company's Common Stock

The Company's operating results have fluctuated widely on a quarterly basis, and
we expect to experience  fluctuation in future quarterly  operating results.  In
addition,  the Company cannot predict with any  significant  degree of certainty
the Company's  quarterly  operating results.  Many of the factors that cause the
Company's  quarter-to-quarter  operating results to be unpredictable are largely
beyond the Company's control. Factors that impact operating results include:

     o    Demand for the Company's products and services;
     o    Conditions in the Internet services industries;
     o    Timing of dispositions, acquisitions and capital expenditures;
     o    General economic conditions; and
     o    Timing and conditions of sales.

As a result,  the Company  believes  that  period-to-period  comparisons  of the
Company's revenues and results of operations are not necessarily  meaningful and
should not be relied upon as indicators of future performance. It is likely that
in one or more  future  quarters  the  Company's  results  may  fall  below  the
expectations of analysts and investors.  In such event, the trading price of the
Company's common stock would likely decrease.

The  Company's  Purchase  of  Intellicom  may  Adversely  Affect  the  Company's
Financial Condition
The purchase of Intellicom  involves other risks  including  potential  negative
effects on the Company's reported results of operations from acquisition-related
charges and amortization of acquired  technology and other intangible assets. As
a result of the  Intellicom  acquisition,  the  Company  recorded  approximately
$16,075,000  of  intangible  assets.  The  resulting  amortization  expense will
adversely affect the Company's  earnings and  profitability  for the foreseeable
future. If the amount of such recorded  intangible assets is increased or if the
Company has future losses and is unable to demonstrate the Company's  ability to
recover the amount of intangible  assets recorded during such time periods,  the
period of  amortization  could be shortened,  which may further  increase annual
amortization  charges.  In such event,  the  Company's  business  and  financial
condition  could  be  materially  and  adversely  affected.  In  addition,   the
Intellicom acquisition was structured as a purchase by the Company of all of the
outstanding  stock of  Intellicom.  As a result,  the Company could be adversely
affected by direct and contingent liabilities of Intellicom. It is possible that
the  Company  is not aware of all of the  liabilities  of  Intellicom,  and that
Intellicom has greater liabilities than the Company expected.

If the Company is unable to Successfully  Integrate Future Acquisitions into the
Company's Operations,  then the Company's Results and Financial Condition may be
Adversely Affected

In  addition to the recent  acquisitions  of  Intellicom  and Laptop  Lane,  the
Company may acquire other  businesses that the Company  believes will complement
the Company's  existing  businesses.  The Company  cannot predict if or when any
prospective  acquisitions  will  occur  or the  likelihood  that  they  will  be
completed  on  favorable  terms.  Acquiring  a  business  involves  many  risks,
including:

     o    Disruption  of  the  Company's   ongoing  business  and  diversion  of
          resources and management time;
     o    Dilution  to  existing   stockholders   if  the  Company  uses  equity
          securities to finance acquisitions;
     o    Incurrence of unforeseen obligations or liabilities;
     o    Inability  of  management  to maintain  uniform  standards,  controls,
          procedures and policies;
     o    Difficulty assimilating the acquired operations and personnel;
     o    Risks of entering markets in which the Company has little or no direct
          prior experience; and
     o    Impairment of relationships with employees or customers as a result of
          changes in management.

The Company cannot assure that it will make any  acquisitions or that it will be
able to obtain additional financing for such acquisitions,  if necessary. If any
acquisitions  are  made,  the  Company  cannot  assure  that  it will be able to
successfully  integrate the acquired  business  into its  operations or that the
acquired business will perform as expected.
<PAGE>

The Company's Equity Investments in Other Companies may not yield any Returns

The Company has made equity investments in several  Internet-related  companies,
including  joint  ventures  in  other  countries.   In  most  instances,   these
investments are in the form of illiquid  securities of private companies.  These
companies  typically are in an early stage of development and may be expected to
incur substantial  losses. The Company's  investments in these companies may not
yield any  return.  Furthermore,  if these  companies  are not  successful,  the
Company  could incur charges  related to the  write-down or write-off of assets.
The Company  also  records and  continues to record a share of the net losses in
these companies, up to the Company's cost basis. The Company may make additional
investments in the future.  Losses or charges  resulting from these  investments
could harm the Company's operating results.

The Company does not intend to pay Dividends

The Company has not historically paid any cash dividends on the Company's common
stock and does not  expect to  declare  any such  dividends  in the  foreseeable
future.  Payment of any future dividends will depend upon the Company's earnings
and capital  requirements,  the Company's debt obligations and other factors the
board of directors deems relevant.  The Company  currently intends to retain its
earnings, if any, to finance the development and expansion of its businesses.

The Company's Stock Price is Volatile

The volatility of the Company's stock price may make it difficult for holders of
the common stock to transfer  their  shares at the prices they want.  The market
price for the Company's  common stock has been volatile in the past, and several
factors could cause the price to fluctuate  substantially  in the future.  These
factors include:

     o    Announcements of developments related to the Company's business;
     o    Fluctuations in the Company's results of operations;
     o    Sales of  substantial  amounts of the  Company's  securities  into the
          marketplace;
     o    General  conditions  in the  Company's  industries  or  the  worldwide
          economy;
     o    An outbreak of war or hostilities;
     o    A shortfall in revenues or earnings  compared to securities  analysts'
          expectations;
     o    Changes in analysts' recommendations or projections;
     o    Announcements  of new  products  or  services  by the  Company  or the
          Company's competitors; and
     o    Changes in the Company's relationships with the Company's suppliers or
          customers.

The market price of the Company's  common stock may fluctuate  significantly  in
the  future,   and  these   fluctuations  may  be  unrelated  to  the  Company's
performance.  General market price  declines or market  volatility in the future
could adversely  affect the price of the Company's  common stock,  and thus, the
current market price may not be indicative of future market prices.

Prospective  Anti-Takeover  Provisions  could  Negatively  Impact the  Company's
Stockholders

The Company is a Delaware  corporation.  The Delaware  General  Corporation  Law
contains  certain  provisions  that may  discourage,  delay or make a change  in
control of the  Company  more  difficult  or prevent  the  removal of  incumbent
directors.  In addition,  the Company's  certificate of incorporation and bylaws
has certain  provisions that have the same effect.  These  provisions may have a
negative  impact on the price of the Company's  common stock and may  discourage
third-party bidders from making a bid for the Company or may reduce any premiums
paid to stockholders for their common stock.

                                Intellicom Risks

If Intellicom Fails to Manage its Expanding Business Effectively,  its Business,
Financial Condition and Prospects could be Adversely Affected

Intellicom's  growth  and  expected  growth  is likely  to  continue  to place a
significant   strain  on  its  resources.   To  exploit  fully  the  market  for
Intellicom's  products and services,  Intellicom  must rapidly execute its sales
strategy while managing anticipated growth through the use of effective planning
and  operating  procedures.  In addition,  Intellicom  must develop its customer
service and  network  operations  centers.  To manage  Intellicom's  anticipated
growth, it must, among other things:

     o    Continue to develop and improve  Intellicom's  operational,  financial
          and management information systems as well as its customer service and
          network operations centers;
     o    Hire and train additional qualified personnel;
     o    Continue to expand and upgrade core technologies; and
     o    Effectively  establish and manage multiple  relationships with various
          customers, suppliers and other third parties.
<PAGE>

Consequently,  such expansion  could place a significant  strain on Intellicom's
services and support  operations,  sales and administrative  personnel and other
resources.  Intellicom may, in the future, also experience  difficulties meeting
demand for its products and services. Intellicom cannot assure that its systems,
procedures  or  controls  will be adequate  to support  its  operations  or that
management  will be able to  exploit  fully  the  market  for its  products  and
services.  Intellicom's  failure  to  manage  growth  effectively  could  have a
material  adverse  effect on the  Company's  business,  financial  condition and
prospects.

Intellicom  may  Fail if its  Industry  as a Whole  Fails  or its  Products  and
Services do not Gain Commercial Acceptance

It has become  feasible to offer Internet  services using  satellites on a broad
scale only recently. There is no proven commercial acceptance of satellite-based
Internet services and none of the companies offering such services are currently
profitable.  It is currently very difficult to predict  whether these  companies
will become viable.  The failure of the broadband  Internet services industry to
evolve  in the  manner in which it is  currently  contemplated  could  adversely
affect the Company's business, financial condition and prospects.

The success of Intellicom  will depend upon the  willingness of new and existing
subscribers to pay the monthly fees and  installation  costs associated with the
service and to purchase or lease the equipment necessary to access the Internet.
Accordingly, the Company cannot predict whether Intellicom's pricing models will
be viable,  whether  demand for  Intellicom's  services will  materialize at the
prices they expect to charge,  or whether  current or future pricing levels will
be sustainable. If Intellicom does not achieve or sustain such pricing levels or
if their  services do not achieve or sustain broad market  acceptance,  then the
Company's  business,  financial  condition,  and  prospects  will be  materially
adversely affected.

An Interruption  in the Supply of Products and Services that Intellicom  Obtains
from Third Parties could cause a Decline in Sales of
Intellicom Services

In  designing,   developing  and  supporting   Intellicom's  Internet  services,
Intellicom relies extensively on third parties. In particular, Intellicom relies
on satellite  providers,  satellite  dish  manufacturers  and Internet  hardware
manufacturers  and  systems  integrators  to  help  build  its  networks.  These
suppliers may experience  difficulty in supplying  Intellicom  with products and
services  sufficient  to meet the needs of  Intellicom  or they may terminate or
fail to renew  contracts for supplying these products and services to Intellicom
on terms that it finds acceptable. Any significant interruption in the supply of
any of these products or services could cause a decline in sales of Intellicom's
services.

Intellicom  Derives  a  Significant  Portion  of  its  Revenues  from  Providing
Equipment and Internet  Services to a Limited Number of Customers which Presents
Credit Risks and could cause Increased Expenses or Losses of Future Revenue

For the three months ended  December 31,  2000,  sales to  Intellicom's  largest
customer,  Tricom,  S.A.,  accounted for  approximately  28% of Intellicom's net
revenue and as of December 31, 2000,  Tricom accounted for  approximately 93% of
Intellicom's total accounts  receivable.  Intellicom expects that a small number
of customers  will continue to account for a significant  portion of its revenue
for the foreseeable  future.  If any one of Intellicom's  customers,  especially
Tricom,  discontinues its  relationship for any reason,  Intellicom may suffer a
significant reduction to its future revenue and may incur significant losses.

Intellicom  Depends on  Third-Party  Carriers to Maintain  its  Networks and any
Interruption  of its  Operations  due to the Failure to Maintain  such  Networks
would  have a  Material  Adverse  Effect on the  Company's  Business,  Financial
Condition and Prospects

Intellicom's success will depend upon the capacity,  reliability and security of
the network  used to carry data  between its  subscribers  and the  Internet.  A
portion  of the  network  used by  Intellicom,  is owned by third  parties,  and
accordingly  Intellicom  has  no  control  over  its  quality  and  maintenance.
Currently,  Intellicom has transit  agreements  with  MCIWorldCom,  Sprint,  and
others to support the exchange of traffic between its network operations centers
and the Internet.  In addition,  Intellicom  has  agreements  with SatMex and GE
Americom for satellite  transponder  space. The failure of any other link in the
delivery chain resulting in an interruption  of  Intellicom's  operations  would
have a material adverse effect on the Company's  business,  financial  condition
and prospects.
<PAGE>

Intellicom's Services may be Subject to Downward Pricing Pressures,  which would
Negatively Impact its Financial Results

The market for  Internet  access in the U.S.  is  subject  to  downward  pricing
pressure  caused by a number of factors,  including  increased  competition  and
technological  advances.  Pricing  pressures  outside of the U.S. in the markets
Intellicom  serves may develop as  international  Internet  access and  services
become more  available.  To operate,  Intellicom has certain costs,  such as its
lease of  satellite  transmission  capacity,  which  are  relatively  fixed  and
generally not susceptible to downward pricing pressure. As a result,  Intellicom
has little flexibility in lowering the price for its services.  If Intellicom is
affected by downward pricing pressure,  it cannot assure that it will be able to
offer Internet services at prices that are competitive or profitable.

Intellicom has a Lengthy and Complex Sales Cycle, which may Require it to Commit
Significant Resources Prior to Receiving Revenues

Intellicom targets large enterprises as ideal customers. Because the purchase of
Intellicom's products and services is a significant  investment for its customer
base, Intellicom's customers generally take a long time to evaluate Intellicom's
products  and  services.  Intellicom  expects  that most of its  customers  will
evaluate its products and services in a process  involving  multiple  people and
departments.  In addition,  Intellicom's  customers may have concerns  about the
introduction or announcement of new products, services and technologies, whether
by  Intellicom  or by  others,  as well  as  requests  for  product  or  service
enhancements.  Accordingly,  Intellicom  has and  expects to  continue to expend
significant  resources  educating  prospective  customers  about  the  uses  and
benefits of its services.  Intellicom's limited historical  experience indicates
that its sales cycle can range from three  months to nine  months,  although the
cycle could be longer due to significant delays over which Intellicom has little
or no control, such as the budgeting and approval process of its customers. As a
result of this long sales cycle,  Intellicom  may take a  substantial  amount of
time to generate revenue from sales efforts.  In addition,  any delay in selling
Intellicom's  products and  services  could lead  prospective  customers to find
alternatives  from a  competitor  or to develop an in-house  solution.  Further,
Intellicom  may spend a  significant  amount  of time and  money on a  potential
customer that ultimately does not purchase its services.

Intellicom's  Business will Suffer and its Financial Results will Deteriorate if
it does not Continue to Expand its Customer Base

Intellicom's  success depends  primarily on the growth of its customer base, the
retention  of its  current  customers  and its  ability  to expand the number of
Internet  services it offers to its  customers  so that revenue per customer and
overall  revenue  increase.  If  Intellicom is unable to maintain and expand its
customer  base its business  and  financial  results  will suffer.  Intellicom's
ability to attract new  customers  and,  to a lesser  degree,  maintain  current
customers,  as well as its ability to increase the amount of revenue it receives
from each customer, depends on a variety of factors, including:

     o    Continued  growth  in  demand  by  international  ISPs  and  corporate
          enterprises for Internet backbone connectivity;
     o    Intellicom's  ability  to  provide  adequate  bandwidth  to all of its
          customers;
     o    Intellicom's   ability  to  provide  additional  services  across  its
          network;
     o    Intellicom's ability to broadcast content around the world;
     o    The  success  in  Intellicom's   development  and  management  of  its
          strategic and business relationships;
     o    Intellicom's   success  in  establishing   and  maintaining   business
          relationships  with content  aggregators,  Internet backbone operators
          and regional satellite owners; and
     o    The reliability and cost-effectiveness of Intellicom's services.

If   Intellicom   is  unable  to   Maintain,   Expand  and  Adapt  its   Network
Infrastructure, the Demand for its Services may Decrease

Intellicom  must  continue  to expand and adapt its network as the number of its
international customers grows, as users place increasing demands on its network,
and as other requirements  change. As Intellicom grows its customer base, it may
not be  able to  provide  its  customers  with  the  increasing  levels  of data
transmission  capacity  that they may require  for a number of reasons,  such as
Intellicom's possible inability to raise the funds needed to develop the network
infrastructure  to  maintain  adequate  transmission  speeds  and  the  lack  of
additional  network  availability  from  third-party  suppliers of satellite and
fiber  optic cable  transmission  capacity.  Intellicom's  failure to achieve or
maintain high capacity  transmissions could significantly  reduce demand for its
services, decreasing its revenue and harming its business and financial results.

If Intellicom Fails to Accurately Predict its Satellite  Bandwidth  Requirements
and Effectively  Manage its Fixed Costs,  the Company's  Operating  Results will
Suffer

If  Intellicom  does  not  obtain  adequate  satellite   bandwidth  capacity  on
acceptable terms and realize  corresponding  customer volume for this bandwidth,
it is unlikely that  Intellicom will achieve  positive gross profit.  Intellicom
purchases  this  bandwidth  capacity  based on its  projected  future needs on a
fixed-price  basis in  advance  of the sale of its  services  that  utilize  the
bandwidth. Substantially all of this bandwidth capacity can be purchased only on
a long-term  basis.  Intellicom  sells its services on the basis of actual usage
and total bandwidth capacity used by its customers,  which changes from month to
month and is  difficult  to  predict.  If  Intellicom's  sales fail to match its
projections,  it could be subject to periods of excess satellite capacity, which
could  seriously harm its business.  As a result,  Intellicom must obtain enough
bandwidth to meet its projected  customer  needs,  and  Intellicom  must realize
adequate volume from its customers to support and justify the bandwidth capacity
and expense. If demand from existing or potential customers exceeds Intellicom's
capacity,  the quality of its service may suffer or Intellicom  may be unable to
capitalize on potential business opportunities.  If that happens, Intellicom may
lose existing or potential customers and its operating results would suffer.
<PAGE>

Problems  Associated  with  Operating in  International  Markets  could  Prevent
Intellicom from Achieving or Sustaining its Intended Growth

The  majority  of  Intellicom's  business  will be  derived  from ISPs and other
businesses  located in  foreign  countries.  Intellicom's  failure to manage its
international  operations  effectively  would  limit  the  future  growth of its
business.   Intellicom   faces   certain   inherent   challenges  in  conducting
international operations, such as:

     o    Changes  in  telecommunications   regulatory   requirements  or  trade
          barriers restricting Intellicom's ability to deliver Internet services
          to its customers;
     o    The  imposition  of  unanticipated  fees,  taxes and costs by  foreign
          governments, which could significantly increase Intellicom's costs;
     o    Political  and  economic  instability  disrupting  the  operations  of
          Intellicom's customers;
     o    Protectionist  laws and business  practices favoring local competition
          potentially giving unequal bargaining leverage to competitors; and
     o    Currency fluctuations  increasing the cost of Intellicom's services to
          its international customers.

Intellicom's  failure to  adequately  respond to any of these  challenges  could
seriously harm its operations and prospects.

Failure to Recruit and Retain Key Management, Technical and Sales Personnel will
Adversely Affect Intellicom's Ability to Operate

Intellicom's  success depends, in large part, on Intellicom's ability to attract
and retain qualified technical,  marketing, sales and management personnel. With
the expansion of Intellicom's  services,  it is currently seeking new employees.
However, competition for such personnel is intense in Intellicom's business, and
thus,  Intellicom may be unsuccessful in its hiring efforts.  If Intellicom does
not attract and retain such  personnel,  it may not be able to grow its business
and may experience  disruptions in operations.  The failure to attract or retain
other key  employees  could  have a  material  adverse  effect on the  Company's
business, financial condition and prospects.

New Members of the Company's Management Team will have to Effectively  Integrate
to Implement its Strategies

The Company depends on the ability of its management team to effectively execute
its strategies.  Because  certain members of the Company's  management team have
worked together for a short period of time, the Company needs to integrate these
officers into its operations. To integrate into the Company's operations,  these
individuals must spend a significant  amount of time learning its business model
and  management   system,  in  addition  to  performing  their  regular  duties.
Accordingly, the integration of new personnel has and will continue to result in
some disruption to the Company's ongoing operations. If we fail to complete this
integration in an efficient manner, the Company's business and financial results
will suffer.

Any Damage or Failure that Causes Interruptions in Intellicom's Operations could
have  a  Material  Adverse  Effect  on its  Business,  Financial  Condition  and
Prospects

Intellicom's  operations  are  dependent  upon its  ability  to support a highly
complex network and avoid damages from fires, earthquakes, floods, power losses,
telecommunications and satellite failures,  network software flaws, transmission
cable cuts and similar  events.  The occurrence of any one of these events could
cause  interruptions  in the services  Intellicom  provides.  In  addition,  the
failure of an incumbent  local  exchange  carrier or other  service  provider to
provide  the  communications  capacity  Intellicom  requires,  as a result  of a
natural  disaster,  operational  disruption  or any other  reason,  could  cause
interruptions in the services  Intellicom  provides.  Any damage or failure that
causes  interruptions  in Intellicom's  operations could have a material adverse
effect on the Company's business, financial condition and prospects.
<PAGE>


Intellicom may be Vulnerable to Unauthorized Access,  Computer Viruses and Other
Disruptive Problems, which may Result in Intellicom's Liability to its Customers
and may Deter Others from Becoming Customers

While Intellicom has taken substantial  security  measures,  its networks may be
vulnerable  to  unauthorized  access,  computer  viruses  and  other  disruptive
problems.   Internet  service   providers  and  online  service  providers  have
experienced  in the past,  and may  experience in the future,  interruptions  in
service as a result of the accidental or intentional  actions of Internet users.
Unauthorized  access by  current  and  former  employees  or others  could  also
potentially  jeopardize  the  security  of  confidential  information  stored in
Intellicom's computer systems and those of its customers. Such events may result
in  Intellicom's  liability to its  customers and may deter others from becoming
customers, which could have a material adverse effect on the Company's business,
financial condition and prospects. Although Intellicom intends to continue using
industry-standard security measures, such measures have been circumvented in the
past,  and  Intellicom  cannot  assure  you  that  these  measures  will  not be
circumvented in the future.  Eliminating  computer viruses and alleviating other
security problems may cause Intellicom's subscribers delays due to interruptions
or cessation of service. Such delays could have a material adverse effect on the
Company's business, financial condition and prospects.

Intellicom  may Face  Potential  Liability for  Defamatory or Indecent  Content,
which may cause it to Modify the way it Provides Services

Any  imposition  of  liability  on  Intellicom  for  information  carried on the
Internet  could  have a  material  adverse  effect  on the  Company's  business,
financial  condition  and  prospects.  The law relating to liability of Internet
service  providers and online service  providers for  information  carried on or
disseminated through their networks is currently unsettled. A number of lawsuits
have  sought to  impose  such  liability  for  defamatory  speech  and  indecent
materials.   Congress  has   attempted  to  impose  such   liability,   in  some
circumstances, for transmission of obscene or indecent materials. In one case, a
court  has held  that an  online  service  provider  could be found  liable  for
defamatory  matter provided through its service,  on the ground that the service
provider  exercised  active  editorial  control  over  postings to its  service.
Because of the  potential  liability for  materials  carried on or  disseminated
through  Intellicom's  systems,  the Company may have to  implement  measures to
reduce its exposure to such liability. Such measures may require the expenditure
of substantial resources or the discontinuation of certain products or services.

Intellicom may face Potential Liability for Information Retrieved and Replicated
that may not be Covered by its Insurance

Intellicom's  liability  insurance may not cover  potential  claims  relating to
providing  Internet services or may not be adequate to indemnify  Intellicom for
all liability that may be imposed.  Any liability not covered by insurance or in
excess  of  insurance   coverage  could  have  a  material   adverse  effect  on
Intellicom's  business,  financial condition and prospects.  Because subscribers
download and redistribute  materials that are cached or replicated by Intellicom
in  connection  with  its  Internet  services,  claims  could  be  made  against
Intellicom under both U.S. and foreign law for defamation, negligence, copyright
or trademark infringement,  or other theories based on the nature and content of
such  materials.  These types of claims have been  successfully  brought against
online  service  providers.  In  particular,  copyright and  trademark  laws are
evolving both domestically and internationally,  and it is uncertain how broadly
the rights provided under these laws will be applied to online environments.  It
is impossible for  Intellicom to determine who the potential  rights holders may
be with respect to all materials available through its services.  In addition, a
number of third-party  owners of patents have claimed to hold patents that cover
various forms of online transactions or online technology.  As with other online
service providers, patent claims could be asserted against Intellicom based upon
its services or technologies.

Third  Parties  may  Claim  that   Intellicom's   Product   Infringes  on  their
Intellectual Property, which could Result in Significant Expenses for Litigation
or for Developing or Licensing New Technology

The  Internet  and  telecommunications   industries  are  characterized  by  the
existence  of a large  number  of  patents  and  frequent  litigation  based  on
allegations of patent infringement or other violations of intellectual  property
rights.  Third  parties may assert  claims that  Intellicom's  current or future
products,  networks or ways of doing  business  infringe  on their  intellectual
property.  Intellicom  cannot  predict  whether  third parties will assert these
types of claims  against  Intellicom  or against  the  licensors  of  technology
licensed to Intellicom.  Intellicom cannot predict whether such assertions would
harm its business.

If Intellicom is required to defend against these types of claims,  whether they
are with or without  merit or whether  they are  resolved in favor of or against
Intellicom  or its  licensors,  it may face costly  litigation  and diversion of
management's attention and resources. As a result of these disputes,  Intellicom
may have to develop or otherwise obtain non-infringing  technology or enter into
licensing agreements, any of which may be costly.



<PAGE>


A Perceived or Actual  Failure by  Intellicom  to Achieve or Maintain High Speed
Data Transmission  could  Significantly  Reduce Consumer Demand for its Services
and  have a  Material  Adverse  Effect  on  the  Company's  Business,  Financial
Condition and Prospects

Because  Intellicom has only been  operational for a relatively  short period of
time  its  ability  to  connect  and  manage  a  substantial  number  of  online
subscribers  at high  transmission  speeds is  unknown.  Intellicom  faces risks
related  to  its  ability  to  scale  up to  expected  subscriber  levels  while
maintaining superior performance. The actual downstream data transmission speeds
for each  customer  may be  slower  and will  depend on a  variety  of  factors,
including:

     o    Actual speed provisioned for the customer's equipment;
     o    Quality of the server used to deliver content;
     o    Overall Internet traffic congestion;
     o    The number of active customers on the network at the same time; and
     o    For  Intellicom,  the service  quality of the networks of Intellicom's
          customers.

The actual data delivery speeds realized by customers may be significantly lower
than peak data  transmission  speeds and will vary  depending on the  customer's
hardware, operating system and software configurations. Intellicom cannot assure
you that it will be able  achieve or  maintain  data  transmission  speeds  high
enough to attract and retain its planned numbers of  subscribers,  especially as
the number of subscribers to its services  grows.  Consequently,  a perceived or
actual failure by Intellicom to achieve or maintain high speed data transmission
could  significantly  reduce  consumer  demand  for  their  services  and have a
material  adverse  effect on the  Company's  business,  financial  condition and
prospects.

Intellicom  may not be able to keep Pace with  Rapid  Technological  Changes  or
Emerging   Industry   Standards  that  could  make  its  Services  Obsolete  and
Unmarketable

Intellicom's services may become less useful to its customers if it is unable to
respond  to  technological  advances  that  shape the  Internet  or  alternative
technologies   or  services  become   available  to  them.   Keeping  pace  with
technological   advances  in  Intellicom's   industry  may  require  substantial
expenditures  and lead time.  In  addition,  future  advances in  technology  or
fundamental changes in the way Internet access or other Internet services can be
delivered may render  Intellicom's  services  obsolete or less cost competitive.
Intellicom may not be able to adequately respond to or incorporate technological
advances on a cost-effective or timely basis into its businesses.

The Internet  Industry Operates in an Uncertain Legal Landscape and the Adoption
or  Interpretation  of Future or Existing  Regulations  could Harm  Intellicom's
Business

The Internet and the markets in which  Intellicom  offers its Internet  services
are relatively new. Many of the laws and regulations that govern  Intellicom and
the Internet have yet to be  interpreted  or enforced.  It is likely that in the
future many new laws will take effect that will  regulate  the  Internet and the
markets in which the Company  operates.  The  applicability  to the  Internet of
existing laws governing issues such as property ownership,  copyrights and other
intellectual property issues,  taxation and tariffs, libel, consumer protection,
obscenity,  pricing and personal  privacy is uncertain.  Current and future laws
and regulations may:

     o    Decrease the growth of the Internet;
     o    Regulate  our  customers  in ways  that harm our  ability  to sell our
          services to them;
     o    Decrease demand for our services; and
     o    Impose taxes or other costly  requirements  or otherwise  increase the
          cost of doing business.

Thus,  the adoption  and  interpretation  of any future or existing  regulations
could seriously harm Intellicom's business.

The Legal  Environment  in which  Intellicom  Operates is  Uncertain  and Claims
Against  Intellicom  and other Legal  Uncertainties  could cause its Business to
Suffer

Because most of Intellicom's  business is conducted outside the U.S., Intellicom
is  susceptible  to the  governmental  regulations  and legal  uncertainties  of
foreign countries.  In general, the laws of countries outside the U.S. governing
the  Internet  and  Internet  services,  to the extent  they exist at all,  vary
widely,  are  unclear  and in flux and have  failed  to keep pace with the rapid
advancements in Internet  technology and the expanding  range of  Internet-based
services being offered.  Partly because of these problems, and Intellicom's view
that local  regulatory  compliance  is a greater  issue of  concern  for our ISP
customers,  Intellicom  has not,  and  currently  does not intend to,  determine
conclusively whether it complies with the requirements of any particular foreign
country.
<PAGE>

Any one or more of the countries where Intellicom  conducts business may require
that Intellicom  qualifies to do business in that particular  country, is liable
for  certain  taxes  or  tariffs,  is  otherwise  subject  to  regulation  or is
prohibited  from  conducting  its  business  in  that  foreign  country.   Thus,
Intellicom  cannot  assure that it is  currently  in  compliance  with the legal
requirements of any particular  country or all of the countries outside the U.S.
in which it conducts  business,  that Intellicom will be able to comply with any
such  requirements or that the requirements  will not change in a way that would
render the receipt of its services in a particular country illegal. Intellicom's
failure to comply  with  foreign  laws and  regulations  could  cause it to lose
customers,  restrict it from entering  profitable markets and seriously harm its
business.

Intellicom's   customers   also  face  many  of  the   governmental   and  legal
uncertainties  that  Intellicom  faces and  currently  are, or in the future may
become,  subject to many of the same  requirements  to which  Intellicom  may be
subject.  Intellicom  makes no effort to determine  whether its customers comply
with applicable  regulations.  The failure of  Intellicom's  customers to comply
with  applicable  laws  and  regulations  could  cause it to lose  customers  or
otherwise seriously harm its business.

                                ISP Channel Risks

The Company may face Unexpected  Liabilities in Winding Down the Business of ISP
Channel

The Company has  determined  that it is in the best interests of the Company and
its  shareholders  to wind down the business of ISP  Channel.  While the Company
expects the process of winding down ISP Channel to be substantially  complete by
February 28, 2001, there can be no assurances that it will be able to do so. The
Company  expects  to  incur  significant  costs  related  to  terminating  cable
affiliate  and other  contracts,  reducing  the  workforce  and  recovering  and
disposing of deployed assets. In addition,  the Company may face litigation from
customers,  cable  affiliates  and  others  with  respect to such  winding  down
activities.

                                  Aerzone Risks

The Company may face  Unexpected  Liabilities  in Winding  Down the  Business of
Aerzone

The Company has  determined  that it is in the best interests of the Company and
its shareholders to wind down the business of Aerzone. While the Company expects
the  process of winding  down  Aerzone  (with the  exception  of the sale of the
Laptop Lane business) to be substantially  complete by April 30, 2001, there can
be no  assurances  that it will be able to do so. The  Company  expects to incur
costs related to terminating airport and other contracts, reducing the workforce
and recovering and disposing of deployed  assets.  In addition,  the Company may
face litigation with respect to such winding down activities.

Further,  the Company may be unsuccessful in its efforts to sell the Laptop Lane
business.  There can be no assurance that a buyer will be found at an acceptable
price  or that  the  business  can be sold for any  particular  amount  of cash,
securities or other consideration.

                   Employment and Change of Control Agreements

On January 5, 2001, the Company entered into a retention and severance agreement
with Jonathan Marx. Under the terms of the retention agreement, Mr. Marx will be
paid an amount equal to a minimum of $105,000 up to a maximum of $640,000, based
upon ISP Channel's financial condition.  In addition, Mr. Marx is eligible for a
severance  benefit equal to 24 months base pay,  payable in the event of (i) the
elimination  of his position as a result of the sale or the close of ISP Channel
and he is not offered employment at SoftNet Systems,  Inc., (ii) he is offered a
comparable  position at SoftNet  Systems,  Inc. and is still  employed after six
months, or (iii) he is offered a position with an acquiring company and is still
employed after six months.

On January 16, 2001,  the Company  entered  into an  employment  agreement  with
Steven M.  Harris,  under  which Mr.  Harris will be paid a total of $500,000 in
salary,  bonus and  severance  for  services  provided  through  the year  ended
September 30, 2001.

Garrett J. Girvan resigned as Chairman, Chief Executive Officer and Acting Chief
Financial  Officer  effective  February  2, 2001.  The Company  paid Mr.  Girvan
$191,827 as severance.



<PAGE>


 Item 6. Exhibits and Reports on Form 8-K.

(a)  Exhibits

    ==============
     Exhibit No.
                             Description of Document

             3.1  Amended and  Restated  Certificate  of  Incorporation  of the
                  Registrant.   Incorporated  by  reference  to  the  Company's
                  Quarterly  Report on Form 10-Q for the quarter ended June 30,
                  1999.

             3.2  By-Laws of the  Company.  Incorporated  by  reference  to the
                  Company's  Registration  Statement  on Form S-3/A dated April
                  22, 1999.

            10.1  Letter  Agreement by  and  between the  Company and Steven M.
                  Harris, dated January 3, 2001.

            10.2  Letter Agreement by and between the Company and Jonathan Marx,
                  dated January 5, 2001.

              27  Financial Data Schedule

(b)  Reports on Form 8-K:

    Current report on Form 8-K filed with the Commission on October 6, 2000

    Current report on Form 8-K filed with the Commission on November 13, 2000

    Current report on Form 8-K filed with the Commission on November 16, 2000

    Current report on Form 8-K filed with the Commission on December 5, 2000

    Current report on Form 8-K filed with the Commission on December 21, 2000



<PAGE>


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

SOFTNET SYSTEMS, INC.



/s/ Ronald I. Simon                                    Date:   February 20, 2001
---------------------------------------------------            -----------------
Ronald I. Simon
Acting  Chief  Executive  Officer  and  Acting  Chief
Financial Officer